In a notable contrast to last year, and perhaps somewhat unexpectedly, it’s been tech names that have buoyed the S&P 500 amid the bank drama that roiled markets over the last few weeks. Combine the durability of tech with strong consumer demand and underlying “megatrends,” and the investment case for names like Shopify (SHOP) and Cloudflare Inc. (NET) begins to stand out, with active tech ETFs one avenue for alpha in the space.
E-commerce-related tech names were major beneficiaries of the monetary regime that followed the Financial Crisis, and though rates have since spiked and the M2 supply is rapidly drying up, e-commerce is still growing. E-commerce topped $1 trillion last year, with consumer resilience and increasing millennial use of e-commerce services buoying the space, too.
That said, those trends are exposed to rate hikes, but that doesn’t have to dissuade investors away from e-commerce, given the underlying megatrends that are pushing the space forward. According to research from Franklin Templeton, megatrends such as the quantification of customer behavior data and the democratization of access to commercial transaction systems are growing the space on their own, with SHOP an example of the latter.
The democratization of online business offered by a company like SHOP has birthed an ecosystem of networked companies with multiple roles, acting as a consumer or a supplier for various services. At the same time, these firms are generating reams of data, which, when combined with quantification of social media data, can be used by e-commerce firms to empower businesses that use their services with algorithms which predict a consumer’s next moves based on increasingly precise and powerful data analytics.
These are not the only trends, but they speak to how e-commerce technology can drive the space forward even if ravenous consumer spending slows down in a recessionary year. Active tech ETFs may be some of the better-equipped strategies to navigate such an environment, with the Franklin Disruptive Commerce ETF (BUYZ) and the Franklin Exponential Data ETF (XDAT) a duo of ETFs to consider.
BUYZ just hit its three-year mark in February, and charges 50 basis points (bps) to invest in those firms that are disrupting traditional commerce, including payment companies, retailers, logistics firms, and more.
XDAT meanwhile will hit three years this coming January, investing in firms that benefit from or facilitate advances in so-called “Big Data,” which includes B2B software firms in the e-commerce ecosystem. XDAT charges 50 bps as well for its active approach, holding names like Data Dog Inc., (DDOG) and NET.
Tech is one of the key sectors in U.S. equities, and often a major component of growth oriented portfolios. Tech may face some challenges in this rising rate environment, but with active tech ETFs to invest across the e-commerce ecosystem and its burgeoning megatrends, XDAT and BUYZ could be a pair of strategies to watch in the weeks and months ahead.
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